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How Rising Competition Among Microfinance Lenders Affects Incumbent Village Banks

Craig McIntosh, Alain de Janvry () and Elisabeth Sadoulet ()

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: This paper uses data from Uganda’s largest incumbent microfinance institution to analyze the impact of entry by competing lenders on client behavior. We first examine the geographic placement decisions of competitors, and find that placement decisions are strongly affected by district-level characteristics. We observe that increased competition induces a decline in repayment performance and in savings deposited with the incumbent Village Bank, suggesting multiple loan-taking by clients. Urban clients take multiple loans primarily from lenders with more individual methodologies, while rural clients borrow from several group lenders. Individuals who operate larger businesses are the ones most likely to leave the incumbent Village Bank when a Solidarity Group lender enters the marketplace.

Keywords: microfinance; competition; credit markets (search for similar items in EconPapers)
Date: 2003-06-01
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